Bank deposits ; Banks and banking - West ; Savings and loan associations

Gary C. Zimmerman

English

Research Papers in Economics

FRBSF WEEKLY LeTTEA
July 28, 1989
Deposits Patterns
at Western Banks and Thrifts
Inthe past few years,publicity surrounding the
thrift industry's troubles has grown, and many
now wonder whether these institutions will be
able to maintain their nearly $1 trillion deposit
base, of which over ninety percent is insured by
the Federal Savings and Loan Insurance Corpora-
tion (FSLlC). From January to May 1989, thrift
institutions (including savings and loan associa-
tions and savings banks) nationwide suffered a
$12.6 billion decline in deposits, while banks
enjoyed a $10.5 billion increase. Many observers
suggest that this decline is the result of increased
concern about the safety of deposits placed in
FSLlC-insured institutions.
In contrast to the national figures, in the nine
westernmost states, there was little evidence of
actual deposit runoff at thrift institutions, al-
though deposit growth stalled. Closer examina-
tion of deposit flows into and out of various
account categories at western banks and thrifts
suggests that changes in the interest rates paid on
these accounts, rather than safety and soundness
concerns, account for western deposit growth
patterns in recent months.
No runoff in the West
A number of thrift institutions in the West have
experienced unfavorable publicity regarding their
financial health recently. Some even may have
experienced depositor runs. However, for the
thrift industry in the West as a whole, concerns
about the safety of depositors' funds do not ap-
pear to have been a significant factor in deter-
mining thrift deposit patterns. Several recent
developments point to this conclusion.
First, total deposits at thrifts in the West remained
essentially unchanged at around $326 billion
from January to May, in contrast to the decline in
J
thrift deposits for the nation as a whole. More-
over, this development is in keeping with the
experience of commercial banks in the region,
which actually recorded a slight decline in total
domestic deposits over the same period (from
$298 billion to $296 billion). These patterns are
not consistent with a significant loss in confi-
dence in the safety of western thrifts, particularly
since there is evidence that the spread between
deposit rates paid by major S&Ls in the region
and those paid by leading commercial banks
narrowed in the first half of the year.
Second, S&Ls in the West have not experienced
a runoff of large time certificates of deposit
("CDs" in denominations of $100,000 or more).
Because deposit insurance coverage is limited to
$100,000, a significant portion of the interest and
principal in these CDs is at risk. Consequently,
depositors with jumbo CDs are likely to be par-
ticularly sensitive to any signal that their invest-
ments might be in jeopardy. Ifconcerns about
safety had increased, these deposits would
have been the first to run off. Yet western S&Ls
recorded a $3 billion increase in jumbo CDs
outstanding from late January through May.
Third, and most telling, deposit growth patterns
for various types of accounts at S&Ls are similar
to those for the same types of accounts at com-
mercial banks in the West. If depositors con-
sidered S&Ls less safe than banks, we would
have expected a divergence in these growth
patterns, as depositors transferred funds from
accounts at thrifts to similar accounts at banks.
As shown in the Chart, banks and S&Ls experi-
enced similar declines in MMDAs and savings
deposits. Both types of institutions recorded
increases in small time deposits. And both in-
creased their large CDs by similar amounts overFRBSF
($ BIllions)
8
Chart 1
Cumulative Changes in Deposits
the period. These developments suggest that
bank and thrift deposit flows were the result
of common influences, rather than a specific
concern for the safety of deposits at thrifts.
Because of these differences in rate sensitivity,
sizeable interest rate movements in 1988 and
1989 have caused the rates paid on small time
certificates to rise well above the rates paid on
MMDAs and savings accounts. In California, for
example, the rate paid on 2112 year certificates
rose to 9.3 percent in May 1989, nearly 350
basis points above the MMDA rate. As recently
as July 1988, the difference was only 200 basis
points.
At the margin, wider differentials, in turn, have
led depositors to adjust their asset portfolios by
shifting funds to higher-return instruments like
time certificates. This effect can clearly be seen
in the Chart, where declines in MMDAs and sav-
ings have been offset by increases in small time
deposit balances.
6
4
2
o
-2 --_ ...- S&Ls
MMDAs & Savings
Small Time
Banks -;;;!'?
/'" ...- ---- ---- ...-....-....-
_ - .-....... ..,.:::S&.Ls
.~.~.~._._._._.~
In contrast, rates on one-year timecertificates,
which are primarily a savings vehicle and are
therefore much more interest-rate sensitive, are
much more closely linked to changes in market
interest rates. A month after a 100 basis point
change in the onecyear T-bill rate, these rates
move an estimated 80 basis points.
Interest rate incentives
These movements of funds appear largely to have
been due to changes in interest rate differentials
across account types. Variations in service and
maturity characteristics give rise to these differ-
entials. Accounts which combine savings with
transaction features, like MMDAsand NOWs, for
example, typically offer lower interest rates than
do certificates of depositthat do not offer such
transactions services.
Moreover, MMDAs and NOWs are relatively
interest-rate insensitive in the short run, in the
sense that a substantial proportion of the funds in
these accounts remains even when higher rates
become available elsewhere. Because of this rate
insensitivity, depository institutions (in the West
and the nation) typically allow rates to adjust
only partially to upward and downward move-
ments in market interest rates. Statistical analysis
indicates that a month after a 100 basis point
change in the three-month Treasury bill rate,
MMDA rates paid by banks in the West have
tended to move only 24 basis points.
JANS9 MARS9 MAYS9
-8 Interest rate differentials also may partially
explain the slower overall growth of deposits in
the region. The large differential between rates
paid on MMDAs (under six percent) and on
money market mutual funds (over nine percent)
may have encouraged funds to shift from deposi-
tory institutions to the money funds, which have
grown rapidly in 1989. Higher rates on Treasury
securities also may have attracted funds.
The difference
Although S&Ls in the West are affected by the
thrift industry's problems, most observers believe
that the West's large, publicly-traded S&Ls which
dominate this region's thrift industry, generally
remain healthy. Most are relatively well capital-
ized and profitable. Their strength is underscored
by their ability to issue large CDs. They account
for well over half of the industry's large CDs
nationwide, even though the region accounts for
only about one-third of total S&L deposits. Thus,
it appears that, despite the industry's problems,
as a group, S&Ls in the western region have been
able to retain both customer confidence and
deposits.
In sum, recent deposit patterns in the West
appear to be based more on interest rate dif-
ferentials than on concerns about safety and
soundness. Depositors merely are responding to
market incentives as they allocate funds among
various savings instruments.
Gary C. Zimmerman
Economist
JREGIONAL BANKING DATA
MARCH 31, 1989
(Not Seasonally Adjusted, Preliainary Datal
DISTRICT AUSKA ARIZ. CALIF. HAWAII IDAHO NEVADA OREGON UTAH WASH.
-------- -------- -------- -------- --------
ASSETS TOTAL 432,356 3,711 28,073 302,775 13,078 7,340 13,332 20,090 10,528 33,429
FOREIGN 41,270 1 N/A 39,264 1,314 N/A N/A N/A 114 577
DOMESTIC 391,086 3,711 28,073 263,510 11,764 7,340 13,332 20,090 10,415 32,852
LOANS TOTAL 298,461 1,730 20,265 209,341 7,756 4,874 10,356 12,840 6,736 24,564
FOREIGN 31,956 1 N/A 31,010 753 N/A N/A N/A N/A 191
DOMESTIC 266,506 1,730 20,265 178,331 7,003 4,874 10,356 12,840 6,736 24,372
REAL ESTATE 114,226 700 8,676 82,142 3,306 1,258 1,745 4,110 2,839 9,451
COMMERCIAL 73,865 646 4,946 50,343 2,049 1,330 1,504 4,796 1,728 6,521
CONSUMER 54,438 174 4,684 30,184 1,195 1,326 6,819 2,830 1,555 5,672
AGRICULTURE 4,704 7 486 2,410 24 482 18 307 110 860
INTERNATIONAL 226 N/A 32 190 0 N/A N/A 0 2 1
SECURITIES TOTAL 44,085 1,410 3,852 24,296 2,401 1,398 1,924 3,517 1,781 3,505
U.S.T.S. 13,974 1,019 1,604 6,696 771 462 604 1,069 394 1,355
SECONDARY HARKET 16,986 164 675 12,051 632 509 360 800 854 939
OTHER SEC. 13,125 228 1,573 5,549 998 428 960 1,647 533 1,210
LIABILITIES TOTAL 406,611 3,308 26,295 285,729 12,272 6,817 12,473 18,730 9,826 31,160
DOMESTIC 365,341 3,307 26,295 246,465 10,957 6,817 12,473 18,730 9,713 30,583
DEPOSITS TOTAL 341,785 2,838 23,109 239,623 11,629 6,105 6,558 15,442 8,561 27,920
FOREIGN 34,145 1 N/A 32,438 1,065 N/A N/A N/A 114 528
DOMESTIC 307,639 2,837 23,109 207,185 10,565 6,105 6,558 15,442 8,448 27,392
DEMAND 77,284 798 4,539 56,502 2,083 950 1,791 3,096 1,526 5,998
TIME AND SAVINGS 230,355 2,039 18,570 150,682 8,482 5,155 4,767 12,346 6,921 21,393
OTHER BORROWINGS 41,988 426 2,735 26,999 114 632 5,344 2,452 1,071 2,215
EQUITY CAPITAL 25,745 404 1,778 17,046 807 523 858 1,359 702 2,269
LOAN LOSS RESERVE 7,931 39 421 6,349 123 89 232 170 129 379
STANDBY LEITERS OF CREDIT 32,760 25 671 28,612 492 109 157 552 277 1,864
LOAN COMMITMENTS 138,476 277 5,043 110,942 3,561 1,025 1,514 4,641 1,595 9,879
LOANS SOLD 114,843 12 176 113,898 103 22 58 116 29 430
LOAN LOSS RESERVE (ALL BANKSl 2.66 2.23 2.08 3.03 1.59 1.83 2.24 1.32 1.92 1.54
NET CHARGEOFFS, TOTAL 0.90 0.92 1.45 0.92 0.05 0.33 1.54 0.88 0.80 0.38
REAL ESTATE 0.28 0.64 1.96 0.06 0.08 0.15 0.16 0.84 0.67 0.39
COMMERCIAL 0.45 1.33 0.94 0.47 -.14 0.11 0.01 0.97 0.97 -.27
CONSUMER 1.77 0.57 1.57 2.01 0.33 0.88 2.22 0.98 1.15 1.26
AGRICULTURE 0.12 N/A 0.91 -.18 -2.80 0.10 -.02 1.73 0.38 0.07
PAST DUE & NOH-ACCRUAL, TOTAL 5.43 10.70 10.40 5.63 1.77 1.84 2.14 3.28 4.29 3.80
REAL ESTATE 6.00 16.00 18.10 4.95 1.66 1.80 4.56 6.22 5.56 5.27
COMMERCIAL 5.84 9.32 7.87 6.43 1.94 2.51 4.57 2.16 3.98 3.27
CONSUMER 2.40 2.72 2.14 2.86 2.39 1.67 1.08 1.92 3.24 2.08
AGRICULTURE 11.20 N/A 4.18 16.50 11.50 2.66 0.68 4.04 3.82 7.02
INCOME TOTAL 12,286 91 746 8,663 332 203 500 513 286 951
INTEREST 10,346 79 651 7,191 292 182 447 450 254 800
FEES & CHARGES 501 4 38 337 8 10 12 28 15 50
EXPENSES TOTAL 10,477 80 737 7,315 275 170 391 431 265 814
INTEREST 5,487 42 369 3,830 159 102 199 232 146 408
SAURIES 2,005 17 140 1,415 58 28 45 90 40 172
LOAN LOSS PROVISION 625 4 85 387 9 5 46 27 18 42
OTHER 2,360 17 142 1,683 49 35 101 82 61 191
INCOME BEFORE TAXES 1,798 12 10 1,342 56 31 109 82 20 137
TAXES 647 2 -2 500 19 10 47 25 5 41
NET INCOME 1,274 10 12 932 37 21 87 56 15 103
ROA (Xl 1.21 1.09 0.17 1.26 1.17 1.14 2.58 1.18 0.59 1.26
ROE (Xl 19.80 9.80 2.73 21.90 18.10 16.20 40.40 16.60 8.73 18.20
NET INTEREST IlARGIN (Xl 4.60 4.15 4.04 4.56 4.27 4.30 7.37 4.55 4.12 4.78
Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of
San Francisco, or of the Board·of Governors of the Federal Reserve System.
Editorial comments may be addressed to the editor (Barbara Bennett) or to the author.... Free copies of Federal Reserve
publications can be obtained from the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702,
San Francisco 94120. Phone (415) 974-2246.
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PERCENT OF TOTAL DEPOSITS, FOR IlAY 1989, BY REGION
DISTRICT ALASKA ARIZONA CALIF HAllAII IDAHO NEVADA OREGON UTAH IIASH
DEPOSIT TYPE CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU CB SL CU
TOTAL DEPOSITS 4650 4 72 919 5343 4 41 55 3 6530 5 87 10 3 66 31 3 6629 5 6723 10 5439 7
DENAND 94 4 2 98 1 1 93 4 3 94 4 2 94 3 3 96 1 3 100 0 0 97 1 2 93 4 3 96 3 1
NOW 6132 7 49 15 37 6725 8 5737 6 7225 3 88 8 4 77 16 7 7618 6 73 16 11 65 24 12
SAVINGS & MRDA 5833 9 49 842 6823 8 5637 7 60 29 10 88 8 4 73 21 5 6822 9 671221 5728 15
SIIALL TIME 2770 3 71 18 11 40 58 2 21 77 3 40 57 3 83 15 2 41 57 2 5244 4 5539 7 41 55 4
LARGE TIME 32 67 1 95 3 1 3564 1 2870 1 79 18 3 86 10 4 5743 0 6731 2 7423 4 4554 1
C8 =COMRERCIAL BANKS; SL =SAVINGS & LOANS AND MUTUAL SAVINGS BANKS; CU =CREDIT UNIONS; IlAY NOT SUM TO 100x DUE TO ROUNDING
TYPE OF ACCOUNT OR LOAN DATE US DISTRICT ARIZONA CALIF HAllAII IDAHO OREGON UTAH IIASH
----------------------------------------------------------------------------------------_..._-----------------------------
MONEY IlARKET DEPOSIT ACCOUNTS 1lAR89 6.29 5.94 5.81 6.16 5.99 5.73 5.23 6.34 5.09
APR89 6.37 6.02 5.81 6.27 6.05 5.73 5.20 6.47 5.09
1lAY89 6.37 6.00 5.81 6.26 6.05 5.55 5.25 6.33 5.09
6-MONTH CERTIFICATES 1lAR89 8.66 8.23 7.66 8.42 7.71 8.99 8.58 9.03 7.38
APR89 8.77 8.38 7.66 8.70 8.00 9.02 8.81 9.09 7.27
1lAY89 8.66 8.31 7.76 8.61 7.86 8.77 8.55 8.96 7.26
2-1/2 YEAR CERTIFICATES IlAR89 8.84 8.78 8.40 8.93 8.98 9.19 8.89 9.14 8.21
APR89 8.86 8.89 8.40 9.02 9.24 9.31 8.93 9.20 8.28
1lAY89 8.77 8.81 8.36 8.92 8.91 8.92 8.71 9.21 8.29
COMMERCIAL, SHORT- TERN* 1lAY89 11.89 11.58 11.86 11.20 12.25 13.36 11.84 12.77 12.37
AVERAGE IlATURITY <DAYS) 57 84 113 71 97 116 87 186 97
COMMERCIAL, LONG-TERN* 1lAY89 12.76 12.69 11.64 12.43 13.15 13.09 12.78 13.38 12.27
AVERAGE IlATURITY <MONTHS) 46 44 21 31 26 37 56 51 42
COMSTRUCTION LOANS* 1lAY89 12.60 12.15 12.97 12.05 N/A N/A 12.13 N/A N/A
AVERAGE IlATURITY <MONTHS) 7 6 3 6 N/A N/A 10 N/A N/A
LOANS TO FARNERS* 1lAY89 12.86 11.95 12.34 12.05 10.72 12.76 12.37 10.61 12.63
AVERAGE IlATURITY <MONTHS) 9 9 17 7 3 7 28 2 13
CONSUMER LOANS, AUTOIlOBILE • 1lAY89 12.44 12.84 N/A 13.94 N/A 14.50 11.76 12.34 12.18
CONSUMER LOANS, PERSONAL 1lAY89 15.65 16.13 N/A 18.05 N/A 14.50 14.31 17.84 14.89
CONSUMER LOANS, CREDIT CARDS 1lAY89 18.11 18.56 N/A 19.48 N/A N/A 19.24 20.28 15.75
SOURCES: SURVEY OF TERNS OF BANK LENDING & TERNS OF CONSUMER CREDIT; MOST CONMON INTEREST RATES ON SELECTED ACCOUNTS * U. S. DATA ARE COMPOUNDED ANNUAL RATES, DISTRICT AND STATE DATA ARE SIMPLE ANNUAL RATES.
j

Deposit patterns at western banks and thrifts

http://www.frbsf.org/publications/economics/letter/1989/el89-30.pdf

Deposit patterns at western banks and thrifts

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